1. Two sets of experiments were performed on intact foetal lambs exteriorized at Caesarean section; in one set radioactively labelled test substances (inulin, sucrose, mannitol, erythritol, urea) were injected I.V. either singly or in pairs and then followed in plasma, lung lymph and alveolar liquid; in the other set labelled test substances (inulin, sucrose, mannitol, erythritol, D-serine, L-serine, D-alpha-alanine, urea, water, thiourea, N-ethylthiourea) were introduced singly, in pairs, or sequentially into alveolar liquid and their concentration followed in alveolar liquid and plasma.2. Inulin was found to cross lung capillary walls but not alveolar walls. Measurements of its concentration following injection into alveolar liquid were used to determine the volume of foetal alveolar liquid (mean = 30 ml./kg) and its rate of formation (mean = 0.036 ml./min.kg). The volume of the lung interstitial space was determined from previous experiments in which [(125)I]PVP had been injected I.V. then measured after 2 hr in lung tissue and lung lymph (mean = 10.4% foetal lung weight after withdrawal of liquid; approximately 20% wet lung tissue weight).3. Transfer constants (min(-1)) for lung capillaries (K(C)) and alveoli (K(0)) were obtained from the experimental results by compartmental analysis. Permeability constants (P(C) and P(O), cm/sec) were derived from them using estimates for capillary and alveolar areas. For lipid insoluble molecules P(C) and P(O) both increased with decreasing molecular radius, the effect being much greater for P(O) than P(C). P(O) was also shown to increase with lipid solubility of the test molecule even though molecular size increased with lipid solubility in the series tested (urea, thiourea, N-ethylthiourea).4. Analysis of the results for the lipid insoluble substances in terms of pore theory gave a value of pore radius for lung capillaries of 150 A and for alveolar walls of 5.5 A. The smallness of the pores in alveolar walls is thought to prevent proteins and other plasma solutes from penetrating alveoli, and to determine the forces which operate in the osmotic flow of water across alveolar walls.